A "Rich-vs.-King" Approach to Term Sheet Negotiations

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Description

This note offers a new approach to Venture Capital term-sheet negotiations, with actionable steps based on insights from Prof. Wasserman's "Rich-vs.-King" approach to founder decisions. A core thesis of this note is that trying to negotiate all terms in a term sheet will be less effective than focusing on the terms that are most important to the specific entrepreneur in question, taking into account the entrepreneur's goals and motivations in founding the venture. In particular, terms that are higher-priority to a control-motivated "King" founder are often lower-priority to a wealth-motivated "Rich" founder, and vice versa. Thus, this note identifies the most common terms that differ in their importance to different types of founders, and provides a framework for weighing the relative importance of each potential term sheet outcome for their specific type.

Learning objective:

To give students and entrepreneurs a framework to guide their term-sheet negotiations with Venture Capitalists.